You purchase a new lawnmower
or expensive clothinig in a large store.The
store tells you they will give you a 10% discount if you sign up for their credit
card. You agree to the new credit card.

The store believes
that you will use their credit card for future purchases, but you will not pay
off the full balance every month. Therefore, they will make money off you through the 18% to 28% interest rates on that card. Your 10% savings disappears rapidly
as you pay these high interest rates.

Smile!You were just financialized. This is now common throughout many business models.

In simple terms, the store is no longer operating on a
capitalist model as it tries to sell you services and products which are better than its
competitors. Instead, it is using a financialist model whereby they take your
money over a longer period of time by driving you into debt . You are
now working for them through the interest payments. It is a legalized form of debt slavery.

Financialization as a
Business Model – Why is this a Bad Thing?

This
model hurts the overall economy. By putting more and more money into the hands
of the banks and financial industry, less money goes into productive industries
that create real employment and growth for everyone. In economic terms, it can
be said that financialization is distorting the economy through the
misallocation of capital into non-productive sectors.

The Killer

Bankers formerly served the economy by
assisting the flow and allocation of capital.Now, the banking and financial industry has become so powerful that the
economy and polity are serving it.And
it hurts everyone.

What can be Done?

Most politicians and
regulators are unwilling to challenge the financial industry as the banks are
so powerful that elected officials fear them.(See http://tinyurl.com/cdrnm7f)

As a consumer, you can
choose to simply avoid using these systems.Don’t get that new credit card from the hardware store or clothing
store. Pay cash or walk away. Buy from a locally owned store
rather than a large franchise chain.You
will likely get better products and service and enjoy better value over the
long term.With food products, you are also
safer and will remain healthier if you buy local. (See http://tinyurl.com/a5dz86b )

If you cannot afford
to pay off the credit card each month, then do not buy more stuff. Wait until you can pay
cash.Look at your credit card
statements and see how much you are paying in interest. Then figure out how
much that is per year. You will be shocked at how much it costs you to have
been financialized. When you do buy
something from a local store, use cash if you can. The credit card companies
are charging three percent or more on every sale –so that is money leaving
your community.

Outlook

The next major
financial crisis may cause a reset in the way we do business. When this happens
is not clear, but the next crisis will be worse than the events of 2007 and
2008.When the crisis does occur, there
may be a new model put in place that removes the banks and financial institutes
from their place at the top of the power hierarchy.

Financialization is a process whereby
financial markets, financial institutions and financial elites gain greater
influence over economic policy and economic outcomes. Financialization
transforms the functioning of economic system at both the macro and micro
levels. Its principal impacts are to (1) elevate the significance of the
financial sector relative to the real sector; (2) transfer income from the real
sector to the financial sector; and (3) increase income inequality and
contribute to wage stagnation. There are reasons to believe that
financialization may render the economy prone to risk of debt-deflation and
prolonged recession. Financialization operates through three different
conduits: changes in the structure and operation of financial markets; changes
in the behavior of non-financial corporations, and changes in economic policy.
Countering financialization calls for a multi-faceted agenda that (1) restores
policy control over financial markets, (2) challenges the neo-liberal economic
policy paradigm encouraged by financialization, (3) makes corporations
responsive to interests of stakeholders other than just financial markets, and
(4) reforms the political process so as to diminish the influence of
corporations and wealthy elites.

About Me

Hi there! We here at the Honest Banker do not have PhDs in Economics like Ben Bernanke over at the US Federal Reserve. Nor do we have Harvard degrees like Governor Mark Carney of the Bank of Canada/Bank of England. We are not quants with math degrees. What we do have is practical education and honest experience. We contribute to the real world economy while trying to figure out how to survive and build value in our lives and our communities under the current economic model. This model has been dictated to us by economists and politicians using many of the same seriously failed economic models that gave us the financial collapse of 2007 and 2008.
This is “economics for the rest of us” who live in the real world and are trying to figure out how to survive in it despite what the financial sector is doing to us.